Wednesday, October 28, 2009

On June 24, 2009, Associate Counsel Alexander Tisch of the New York State Insurance Department's Office of General Counsel issued an opinion letter that has generated a good deal of discussion and debate in the New York no-fault community. In his opinion letter, entitled "Examinations Under Oath of Assignees", Mr. Tisch opined that "[n]either the [New York] Insurance Law nor the regulations promulgated thereunder permit an insurer to require that a corporate assignee of no-fault benefits designate a specific person of the insurer’s choice to submit to an examination under oath." (My bold.)

Some of the provider attorney ilk have questioned whether or themselves opined that Mr. Tisch's opinion letter may be read in support of an argument that any assignee EUO letter which identifies a specific deponent is invalid or defective as a matter of law. See, David Gottlieb's No-Fault Paradise post and Damin Toell's It's No Fault of New York post on this subject. I, myself, chimed in on this and a related question on the comment thread to Gottlieb's No-Fault Paradise post. At stake are claim denials dating back six years that were based on an assignee's failure or refusal to produce a specifically requested person, such as the provider's nominal owner, for an EUO.

If the bright minds of Gottlieb and Toell think there may be an issue here, then there may be an issue here. Rather than disagree privately or publicly with them, and given the opportunity this private soap e-box gives me to express my views on subjects such as this, I post this open letter to Mr. Tisch and his Office of General Counsel in hopes that the New York no-fault community may have some clarity and/or clarification:

Dear Mr. Tisch --

I have read your June 24, 2009 opinion letter entitled "Examinations Under Oath of Assignees" in which you addressed this general question:

May an insurer, when requesting verification in the form of an examination under oath of an assignee of no-fault personal injury protection (“PIP”) benefits, require a corporate assignee to designate a specific person to be examined?

You opined that a "[n]either the Insurance Law nor the regulations promulgated thereunder permit an insurer to require that a corporate assignee of no-fault benefits designate a specific person of the insurer’s choice to submit to an examination under oath." An inquirer apparently had asked the Department whether the Insurance Law or the regulations promulgated thereunder require that a corporate entity or partnership submit a particular person specified by the insurer to an examination under oath. You correctly noted that both the Insurance Law and Regulation 68 are silent on this question, and that the reference to “any person named by the Company and subscribed the same” in 11 NYCRR § 65-1.1 refers to the person that is to conduct the examination under oath, such as an attorney, rather than to the “eligible injured person or that person’s assignee or representative” to be examined.

You underscored the lack of any helpful text in the regulation by further pointing out that "nowhere does the regulation address whether an assignee that is a corporate entity or partnership must submit a person for examination that is specifically identified by an insurer in its examination under oath notice."

In spite of the regulation's silence on the question posed, however, you answered it with a no, interpreting the acknowledged absence of any prescription or prohibition in the regulation to be, in essence, a prohibition. But a prohibition of what? A prohibition on asking? Or on requiring?

Limited to its express terms, your opinion means only that a no-fault insurer may not require a corporate assignee of no-fault benefits to designate a specific person of the insurer’s choice to submit to an EUO. It doesn't or shouldn't mean that an insurer may not request that a certain person, knowledgeable of the issues to be explored during the EUO, attend the EUO. Indeed, your opinion recognizes a corporate provider's obligation to produce such a knowledgeable person for the EUO by stating:

Although a duty to cooperate is not expressly included in the no-fault endorsement, the Department’s Office of General Counsel is of the view that the principle enunciated in Somerstein Caterers that a corporation ought to produce employees familiar with the claim for an examination under oath should extend to a no-fault examination under oath of an assignee that is a corporation or partnership.

Here's the problem with your opinion. Some might interpret it to mean that an EUO request to a corporate provider which designates or names a particular person is defective or invalid under Regulation 68. Some might also attempt to extend your opinion to mean that all denials of no-fault benefits that were based on a corporate provider's EUO non-appearance or no-show are invalid if the related EUO letter or notice named a specific representative of the corporate provider, such as its purported owner, as the person to be examined under oath.

Either such interpretation of your opinion would be unwarranted and incorrect, in my opinion. My take on your opinion is that without any specific prohibition in either the New York Insurance Law or Regulation 68, an EUO request that names a certain owner or employee of a corporate provider is not legally invalid, but merely cannot serve as the basis of a denial if the provider produces someone else who is familiar with the issues to be explored in the EUO. Am I right?

You obviously don't think that a corporate provider which receives a person-specific EUO request can ignore it, do you? Some might think that your opinion allows providers to do so.

Section 65-3.2(c) of Regulation 68 mandates that "[w]hen verification of facts is necessary, it should be done as expeditiously as possible." Your opinion could undermine that claims handling principle if corporate assignees are allowed either to ignore person-specific EUO requests or produce a string of unknowledgeable employees of the assignee to frustrate or prolong the EUO process. Your opinion does state:

If the insurer is unable to garner the information that it needs from the examination under oath of a person submitted by the assignee corporation or partnership, the insurer may request additional examinations of the assignee until a person is submitted for examination by the assignee who can provide the “items necessary to verify the claim.”

Is there a limit on how many such additional EUOs an insurer may request? Who gets to decide whether the person submitted by the assignee "can provide 'the items necessary to verify the claim'"? To shorten the EUO process, wouldn't it be better for the insurer to say that "we want to examine Dr. So-and-So about such-and-such" so that the corporate assignee can determine whether there is any other person as or more familiar with the such-and-such? And at what point would you say that Somerstein Caterers allows the no-fault insurer after the first, second or third useless EUO to say, "Okay, if you don't produce Dr. So-and-So for an EUO, we will deny this claim"?

As you can see, your answer to what may have seemed like a simple question has itself raised a number of questions that, if left unanswered, could negatively affect the processing of no-fault claims in New York. I'm sure you didn't mean for your opinion to serve as the basis for ignoring or invalidating assignee EUO requests. Some clarification of your opinion would be helpful to both insurers and providers on this issue.

Thank you for your consideration of this issue. Both insurers and providers look forward to hearing from you.

Is an insured’s failure to comply with an insurer’s recommendations, in of itself, a valid basis for canceling a new or renewed commercial lines insurance policy under N.Y. Ins. Law § 3426(c)(1)(D)?

Conclusion:

No. An insured’s failure to comply with an insurer’s recommendations, in of itself, is not a valid basis for canceling a new or renewed commercial lines insurance policy under Insurance Law § 3426(c)(1)(D).

Facts:

An inquirer reported that several insurers have canceled their insureds’ commercial lines insurance policies due to non-compliance with recommendations, which they claim is a proper basis for cancellation under Insurance Law § 3426(c)(1)(D). The inquirer disagrees with these assertions, contending that a renewed commercial lines insurance policy may not be canceled on such basis, because “[f]rom a practical standpoint, loss control visit[s] must be secured before [the] renewal date and if recommendations are not properly addressed, appropriate non-renewal notice must be tendered.” The inquirer also questioned whether a new commercial lines insurance policy may be canceled based on non-compliance with an insurer’s recommendations under Insurance Law § 3426(c)(1)(D).

Analysis:

Insurance Law § 3426, which applies to most property/casualty commercial lines insurance, is relevant to the inquiry. That statute sets forth, among other things, the minimum cancellation provisions applicable to such policies.

Pursuant to Insurance Law § 3426(b), an insurer may cancel a new commercial lines insurance policy during the first sixty days the policy is in effect for any reason not prohibited by law. Insurance Law § 3426(b) reads as follows:

(b) During the first sixty days a covered policy is initially in effect, except for the bases for cancellation set forth in paragraph one, two or three of subsection (c) of this section, no cancellation shall become effective until twenty days after written notice is mailed or delivered to the first-named insured at the mailing address shown in the policy and to such insured’s authorized agent or broker.

Insurance Law § 3426(b) provides a “free look” period of sixty days, during which time an insurer may complete its review of the risk, and determine whether the risk meets its underwriting standards. The Insurance Department explained the rationale behind this “free look” period in its November, 1989 issue of “The Bulletin,” as follows:

Regarding mid-term cancellation, while [Insurance Law] § 3426 clearly gives insurers the authority to cancel policies, the circumstances under which they may do so are limited. And, in order to provide for the legitimate underwriting needs of the insurers, the statute introduced to commercial lines insurance cancellation rules a concept that had been used in personal lines cancellation for many years – the sixty-day “free look.”

Property/casualty insurance is not purchased with the same time and deliberation that might be attendant to the obtaining of, say, a mortgage. Whereas a bank might have weeks or months to thoroughly investigate the mortgage applicant, inspect the property, verify assets, etc., an insurance policy might need to be procured in days or hours. Accordingly, insurers usually have to base their underwriting decisions upon whatever information is available at the time of application, no matter how incomplete or unverified.

The so called sixty-day free look permits an insurer to cancel any newly issued commercial lines policy, upon twenty days written notice, for virtually any reason, during the first days such policy is in effect. This is intended to give the insurer the opportunity to conduct such inspections, verify such information, obtain such experience, etc., as it may deem necessary to properly underwrite the risk. It also gives company officials the opportunity to review the underwriting decisions which may have been made by general agents, lower echelon underwriters, or others who have been given the “power of the pen.” Where deemed appropriate, rating adjustments may be made during the sixty-day period.

The absence of the opportunity to conduct such a review would have serious repercussions regarding the ready availability of commercial property/casualty insurance products. Without the knowledge that they have an appropriate time period to reflect on their underwriting decisions, and correct any major errors which may have been made, insurers would be much less willing to quickly offer coverage unless complete and verified information was in their possession before coverage took effect.

Accordingly, an insurer initially has sixty days in which to review a new risk that it has accepted, and to cancel coverage if the risk is incompatible with its underwriting standards. After the sixty-day “free look” period has expired, however, an insurer may not cancel coverage during the policy term or any renewal thereof unless cancellation is based on one of the criteria specified in Insurance Law § 3426(c). The specific criteria that are relevant to this inquiry are set forth in Insurance Law § 3426(c)(1)(D), which reads as follows:

(c) After a covered policy has been in effect for sixty days unless cancelled pursuant to subsection (b) of this section, or on or after the effective date if such policy is a renewal, no notice of cancellation shall become effective until fifteen days after written notice is mailed or delivered to the first-named insured and to such insured's authorized agent or broker, and such cancellation is based on one or more of the following:

(1) With respect to covered policies:

* * *

(D) after issuance of the policy or after the last renewal date, discovery of an act or omission, or a violation of any policy condition, that substantially and materially increases the hazard insured against, and which occurred subsequent to inception of the current policy period[.]

The Department addressed the purpose of Insurance Law § 3426(c)(1)(D) in its Office of General Counsel opinion, dated August 14, 1990. The Department stated therein:

By enacting [Insurance Law] § 3426(c) the Legislature sought to encourage insurers to thoroughly evaluate the risk and underwrite carefully with the understanding that after the first sixty days they would be on the risk for the remainder of the policy period unless one of the statutorily enumerated reasons for cancellation applied. This section is intended to guarantee reasonable protection against unwarranted cancellation while at the same time permitting insurers the flexibility to operate responsibly.

The [Insurance Law] § 3426(c)(1)(D) requirement that the act substantially and materially increase the hazard insured against embodies the legislative purpose that an insurer be permitted to cancel a policy only when there has been a major change in the scale of the risk subsequent to policy issuance. The conjunctive substantially and materially was used to underscore the stringent criteria that must be met before the subparagraph may be invoked.

The inquirer reported that several insurers have canceled their insureds’ commercial lines insurance policies due to non-compliance with recommendations, which the inquirer states they claim is a proper basis for cancellation under Insurance Law § 3426(c)(1)(D).

However, Insurance Law § 3426(c)(1)(D) only applies when there is a substantial and material increase in the risk after the policy has been issued, but that is not the situation when the policy is nonetheless renewed and the insured fails to comply with the insurer’s recommendations. In the latter instance, the insurer has inspected, and knows the condition of, the risk when it makes its recommendations prior to the renewal date; the risk itself has not been altered after policy issuance. Failure to comply with an insurer’s recommendations thus is not a permissible basis for canceling a policy under Insurance Law § 3426(c)(1)(D).

For further information you may contact Associate Attorney Sally Geisel at the New York City Office.

When a person has a large self-insured retention and the amount of damages at issue in a loss transfer inter-company arbitration falls within the retention, is the self-insured the appropriate party to the arbitration (as opposed to the liability insurer that insures the losses above the retention)?

Is a person’s self-insured status a valid affirmative defense to jurisdiction by a liability insurer?

Answers:

Yes. A person who has, pursuant to the New York Vehicle & Traffic Law (“VTL”), registered a motor vehicle with proper proof of financial security, that indicates that the person is self-insured with respect to the vehicle, is the appropriate party to a loss transfer inter-company arbitration if the amount at issue wholly falls within the retention amount.

[Yes.] The loss transfer inter-company arbitration panel may evaluate all defenses raised at the arbitration, including jurisdictional affirmative defenses.

Analysis:

N.Y. Ins. Law § 5105 is relevant to the inquiries. That statute reads, in pertinent part, as follows:

(a) Any insurer liable for the payment of first party benefits to or on behalf of a covered person and any compensation provider paying benefits in lieu of first party benefits which another insurer would otherwise be obligated to pay pursuant to subsection (a) of section five thousand one hundred three of this article or section five thousand two hundred twenty-one of this chapter has the right to recover the amount paid from the insurer or any other covered person to the extent that such other covered person would have been liable, but for the provisions of this article, to pay damages in an action at law. In any case, the right to recover exists only if at least one of the motor vehicles involved is a motor vehicle weighing more than six thousand five hundred pounds unloaded or is a motor vehicle used principally for the transportation of persons or property for hire…

(b) The sole remedy of any insurer or compensation provider to recover on a claim arising pursuant to subsection (a) hereof, shall be the submission of the controversy to mandatory arbitration pursuant to procedures promulgated or approved by the superintendent. Such procedures shall also be utilized to resolve all disputes arising between insurers concerning their responsibility for the payment of first party benefits.

Insurance Law § 5102(g) defines “insurer” as “the insurance company or self-insurer, as the case may be, which provides the financial security required by article six or eight of the vehicle and traffic law.”

Under the facts presented here, the vehicles in question are owned by a large trucking company, which is self-insured for purposes of the VTL, and therefore is an “insurer” for purposes of Insurance Law § 5105. Provided that the vehicles in question weigh more than 6,500 pounds unloaded, the mandatory arbitration provisions set forth in Insurance Law § 5105(a) apply, and thus provide the sole remedy for the party seeking arbitration.

A. Proper Parties to Loss Transfer Arbitration

VTL § 312 is relevant to the first question, which asks whether the proper party to a loss transfer arbitration is the excess liability insurer or the trucking company as the self-insurer. That law requires an application for motor vehicle registration to be accompanied by proof of financial security, which shall be evidenced by proof of insurance or evidence of a financial security bond, a financial security deposit or qualification as a self-insurer.

Here, the trucking company has satisfied the VTL requirements necessary to qualify as a self-insurer. Consequently, the trucking company also is a self-insurer for purposes of Article 51 of the Insurance Law. Given that circumstance, the trucking company is the proper party to the arbitration.

B. Jurisdictional Defenses Relating to Self-Insured Status

The second query asks whether a party’s self-insured status is a valid affirmative defense to jurisdiction by a liability insurer. Pursuant to section 65-4.11(a)(4) of Tit. 11, Subpart 65-2 (Reg. 68-B) of the New York Codes, Rules and Regulations (“NYCRR”) “[a]ny determination as to whether an insurer is legally entitled to recovery from another insurer shall be made by an arbitration panel appointed pursuant to this section.” Self-insurers are subject to mandatory inter-company arbitration pursuant to 11 NYCRR § 65-4.11(a), which states that the “term insurer as used in this section shall include both insurers and self-insurers as those terms are defined in this Part and article 51 of the Insurance Law.” Therefore, it is for the arbitration panel to determine whether a jurisdictional affirmative defense predicated on an insured’s self-insured status is valid.

For further information, you may contact Associate Counsel Alexander Tisch at the New York City Office.

Three Allstate companies brought this action against Plainview Professional Medical, P.C., Bruce Bromberg, D.C., Rafael Garcia, M.D., PPP Healthcare Management, Inc., and Handon Management, Ltd.: (1) for a declaration that the Allstate plaintiffs were under no obligation to pay pending, previously denied or future no-fault claims submitted to them by defendants since Plainview Professional Medical PC's certificate of incorporation was annulled by order of the New York State Department of Health, State Board for Professional Medical Conduct on or about October 6, 2008; and (2) to recoup payments made to defendants pursuant to New York State s no-fault law from April 4, 2002 through and including July 18, 2006, predicated on causes of action sounding in fraud and unjust enrichment/restitution.

Plaintiffs moved for summary judgment, contending that, as a consequence of their failure to comply with the state licensing requirements of § 1503(a) of the Business Corporation Law, defendants were not eligible to receive in excess of $600,000 in no-fault payments paid to them by the Allstate plaintiffs. Specifically, Allstate argued that Plainview was formed in violation of Business Corporation Law § 1503 in that Rafael Garcia was not, in fact, Plainview's true owner and Plainview's certificate of incorporation was annulled by the New York State Department of Health, State Board for Professional Medical Conduct on or about October 6, 2008 after an evidentiary hearing at which neither Rafael Garcia nor Plainview appeared to contest the charges. The Hearing Committee found that unqualified individuals were instrumental in operating, controlling and/or handling Plainview's financial and operational affairs, to wit: according to the Findings of Fact contained in the Determination and Order of the Hearing Committee, Plainview "evaded the legal restrictions on incorporation, ownership and/or control of (Professional Corporations) by concealing * * * that legally unqualified individuals incorporated, owned, operated and controlled medical service corporations . While Rafael Garcia, M.D. was listed on Plainview's certificate of incorporation, filed with the Secretary of State on March 8 , 2000 as Plainview's sole shareholder, director and officer, he did not operate or control Plainview from its inception through the present. Although he apparently did not practice medicine at Plainview since in or about the summer of2000, he was compensated for the use of his name.

Allstate also asserted that once he surrendered his medical license, effective February 6, 2008, pursuant to Public Health Law § 230.12, defendant Rafael Garcia was no longer authorized to practice medicine, a further violation of §§ 1503(a) and (b) and 1504(a) of the Business Corporation Law.

Brooklyn, October 7, 2009 – Kings County District Attorney Charles J. Hynes today announced the indictment of 13 people charged, in three separate indictments, in a wide-ranging criminal enterprise that included real estate fraud, identity theft and credit card fraud, and a conspiracy involving automobile insurance fraud. The indictments are the results of an 18-month, joint investigation with the U.S. Secret Service.

The first indictment, containing 164 counts including Enterprise Corruption, charges four defendants – Ryan Foster, Nathaniel Mahone, Jacques Sylvestre, and Yanira Santiago – with operating a credit-card fraud and identity theft ring, which at times netted as much as $10,000 per day, between 2006 and 2008. They are charged with purchasing credit card numbers from private Internet sites in Russia and the Ukraine and using the information to manufacture fake credit cards in various Brooklyn sites they called the “lab”. Then the defendants sent hired “shoppers” to stores, such as Game Stop, Best Buy, Home Depot, Lowe’s, Zales, Louis Vuitton and Ford’s Jewelers, where they would purchase items the ringleaders would later sell, according to the indictment.

The Enterprise Corruption indictment also charges the defendants with purchasing properties through mortgage fraud and using the merchandise stolen from home improvement stores, such as Lowe’s and Home Depot, to increase the values of the homes. The properties could then be re-appraised at higher values, and the defendants could get the mortgages refinanced, according to the indictment. Another aspect of the scheme involved orchestrating fraudulent purchases and sales of the properties, by employing straw buyers and using crooked real estate brokers and loan officers to help them file false paperwork.

In a second, 97-count indictment, Foster, Mahone, Sylvestre and nine others are charged with conspiring to make false accident, vandalism and theft claims on late-model luxury cars, such as BMW, Land Rover, Lexus, Mercedes Benz and Cadillac. The indictment charges that the defendants would remove undamaged interior parts, such as air bags, dash boards, door panels and seats, and replace them with damaged parts. Then they would report to police that the cars had been vandalized near their homes and file claims with their insurance companies to have the damaged car parts replaced, according to the indictment. The investigation revealed that the same damaged car parts were recycled and used repeatedly in separate claims. The defendants are also charged with staging accidents and car thefts to collect insurance payments.

Monday, October 12, 2009

Blogger recently offered a jump break feature for its blogs. A jump break truncates a post on the blog's main page and and allows/requires readers to click a link in order to read the entire post. Many bloggers use them; some don't.

Some of my posts can get long, especially when I quote language from a court's decision. In an effort to de-clutter and shorten the main page, I've inserted jump breaks into recent posts that are long. In a comment to this post or email directly to me, please tell me:

Do you like/mind the jump breaks on longer posts? -or-

Do you prefer simply to read and scroll down the complete, untruncated posts, regardless of their length?

The jump breaks do not affect the various search tools that are available here for finding blog content, unless you're looking for content in the "read more" part of a posting using Ctrl+F. Otherwise, other than an extra left mouse click, nothing's changed.

One precondition to securing uninsured motorists benefits from New York's Motor Vehicle Accident Indemnification Corporation (MVAIC) for injuries sustained in a hit-and-run accident is that the claimant "[r]eport the accident to the police, justice of the peace, a judge, or the Motor Vehicle Commissioner within twenty-four (24) hours after the accident[.]"

The New York courts liberally interpret what constitutes a satisfactory "report". In this matter, the claimant commenced this special proceeding pursuant to Insurance Law § 5218(c) for leave to commence an action against MVAIC, which opposed the petition based on its assertion that the claimant had failed to report the hit-and-run accident to the police within 24 hours. Kings Supreme rejected MVAIC's contention and granted the petition, leading to this appeal.

In AFFIRMING the order granting claimant's petition, the Second Department, held:

The Motor Vehicle Accident Indemnification Corporation opposed the petition for leave to commence an action against it on the ground that the petitioner failed to report the subject accident to the police within 24 hours of the occurrence. However, the courts have "consistently afforded a very liberal interpretation to the notice requirement, accepting police contacts that fall far short of the operator's obtaining a written report" (Matter of Country Wide Ins. Co. [Russo], 201 AD2d 368, 370; see Canty v Motor Veh. Acc. Indem. Corp., 95 AD2d 509; Matter of Dixon v Motor Veh. Acc. Indem. Corp., 56 AD2d 650). Under the circumstances of this case, sufficient notice of the accident was timely given to the police.

The decision does not reveal what the "circumstances of this case" were that the motion and appellate courts found constituted sufficient notice of the accident to the police. However, it appears the claimant had not obtained a written accident report from the police, something the courts rules was not fatal to her MVAIC claim.

This is a troubling decision. Got to agree with the two dissenting justices that the majority created a new and unwarranted excuse to late notice of suit -- the "I didn't know the insurance company had moved and my attorney didn't spend three-tenths of a second to check" excuse.

American Transit insured Batista under a personal auto policy. Batista struck and injured Brown on November 12, 2002. Brown's attorney promptly notified ATIC of Brown's claim, and ATIC assigned a claim number and acknowledged that claim in a letter to Brown's attorney dated January 28, 2003. ATIC's address at the time was 275 Seventh Avenue, New York, NY 10001. ATIC subsequently conducted a property damage appraisal of Brown's vehicle and settled the property damage portion of his claim.

Just shy of the applicable three-year SOL, Brown commenced a personal injury action against Batista on November 9, 2005. On January 26, 2006, Brown's counsel sent a "courtesy copy" of the summons and complaint to ATIC at its Seventh Avenue address, instructing it to interpose an answer on behalf of its insured.

There was no reply or appearance by ATIC which, in fact, had moved two years earlier in November 2003 to offices on West 34th Street in Manhattan. Brown's counsel apparently did nothing to determine why ATIC had not responded to his notice of suit, as ATIC had done almost immediately to counsel's first notice of claim. On June 21, 2007, following an inquest, the court granted a default judgment in favor of Brown for $75,000. Judgment in the total amount of $81,830, including medical liens and interest, was entered against Batista on July 19, 2007. Now needing to "serve" notice of entry of the judgment on ATIC in order to comply with Insurance Law § 3420(a)(2), Brown's attorney apparently had no trouble identifying ATIC's current West 34th Street address and sent the judgment to ATIC at that address on August 9, 2007.

Upon receipt of the default judgment, ATIC promptly disclaimed coverage on the ground that it was not provided with timely notice of the lawsuit. ATIC then brought this declaratory judgment action alleging that neither Brown nor Batista had complied with the policy's requirement that ATIC be timely notified of any suit brought against one of its insureds. ATIC alleged that its first notice of Brown's lawsuit came after judgment was entered against Batista.

New York Supreme denied Brown's motion and ATIC's cross motion for summary judgment on the ground that additional discovery was needed. The First Department's three-justice majority MODIFIED the order appealed from by granting Brown's motion and declaring that ATIC was obligated to satisfy the $81,830 default judgment against Batista.

Defendant GEICO, however, raised a triable issue of fact by submitting its denial of claim forms setting forth that the services for which plaintiff sought to recover no-fault benefits were not medically necessary:

Contrary to plaintiff's contention, defendant is not precluded from denying the claims after the services were rendered on the ground of lack of medical necessity. Plaintiff's assignors were entitled only to reimbursement for medically "necessary" expense (Insurance Law § 5102 [a] [1]; see 11 NYCRR 65-1.1 [d]), and plaintiff assignee is subject to that lack of medical necessity defense (see Long Is. Radiology v Allstate Ins. Co., 36 AD3d 763, 765).

The appellate court also unanimously affirmed the motion court's severance of the amended complaint's 14 causes of action that were based on the plaintiff's billing for 14 separate patients-assignors:

Although this action was commenced "by a single assignee against a single insurer and all [causes of action] allege the erroneous nonpayment of no-fault benefits . . ., they arise from [14] different automobile accidents on various dates in which the [14] unrelated assignors suffered diverse injuries and required different medical treatment" (Poole v Allstate Ins. Co., 20 AD3d 518, 519).

In this short decision, the Fourth Department reminds insurance coverage litigants that "[a] default judgment in a declaratory judgment action will not be granted on the default and pleadings alone for it is necessary that plaintiff[s] establish a right to a declaration[.]" Here, the appellate court ruled that plaintiffs failed to establish their entitlement to the declaration sought, and the motion court abused its discretion in denying Lincoln General's cross motion to compel plaintiffs to accept its answer.

For all actions commenced on or after August 10, 2005, the "Graves Amendment" has provided vehicle lessors with a statutory basis for dismissing vicarious liability claims in motor vehicle accident lawsuits. This amendment to the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users ("SAFETEA") provides in relevant part that:

[a]n owner of a motor vehicle that rents or leases the vehicle to a person (or an affiliate of the owner) shall not be liable under the law of any State or political subdivision thereof, by reason of being the owner of the vehicle (or an affiliate of the owner), for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if-

(1) the owner (or an affiliate of the owner) is engaged in the trade or business of renting or leasing motor vehicles; and

(2) there is no negligence or criminal wrongdoing on the part of the owner (or an affiliate of the owner). 49 U.S.C. § 30106(a).

After plaintiff had successfully moved for partial summary judgment on liability against all defendants, defendant HVT, Inc. moved for leave to amend its answer to add an affirmative defense based on the Graves Amendment, for renewal of the plaintiff's previous motion, and for summary judgment in its favor based on the Graves Amendment. Plaintiff opposed HVT's motion, arguing: (1) that HVT's Graves Amendment defense lacked merit; (2) that HVT waived that affirmative defense by not having asserted it in its original answer; (3) that such defense was prejudicial; (4) that HVT proffered no excuse for having failed to seek summary judgment in response to plaintiff's prior motion; and (5) that HVT failed to establish its prima facie entitlement to summary judgment.

In support of its motion, HVT submitted an an affidavit from a Diane Adams, the Manager of the Procedures and Regulations Department for American Honda Finance Corporation, the servicer of HVT's leasing program and agent of HVT for all obligations of HVT as a lessor under its lease contracts. Adams averred that the vehicle that struck the plaintiff's car was a leased vehicle, owned by HVT. The Adams affidavit also stated that the lessee driver involved in the accident was not an employee or agent of HVT, that HVT had no duty to repair or maintain the leased vehicle, that the vehicle's lessee was responsible for repairs and maintenance, and that as of the accident date, HVT was in the business of leasing motor vehicles to the public.

In granting HVT's motion for renewal of plaintiff's earlier motion for partial summary judgment, Bronx County Supreme Court Justice Nelson Roman reiterated the general rule that an application for leave to renew must be based upon additional material facts which existed at the time the prior motion was made, but were not then known to the party seeking leave to renew, and, therefore, not made known to the court. Justice Roman went on to note that the New York courts have carved out an exception to that general rule:

When Allstate issued a homeowner's policy to the plaintiffs in 2000, plaintiffs' agent told them that a detached pole barn on their property would not be covered under their Allstate policy and procured a separate policy for them from another carrier specifically insuring that structure. In June 2005, while both policies were still in effect, a fire destroyed the pole barn and its contents.

Plaintiffs made a claim to and were paid by the pole barn's insurer, in a amount less than the full value of the loss. While adjusting that fire loss, plaintiffs discovered that their Allstate policy covered other structures and contained no exclusion for the pole barn. Plaintiffs submitted a claim to Allstate for the approximately $45,000 balance of their damages, which Allstate denied, and plaintiffs sued. Following discovery, both sides moved for summary judgment.

In support of their motion, plaintiffs contended that despite what their agent may have told them regarding what coverage the Allstate policy did and did not afford, the Allstate policy was clear and unambiguous in affording coverage to the pole barn as a covered structure, not excluded by any specific endorsement to the policy that Allstate issued to them and for which they had paid a premium.

In opposition, Allstate argued that what plaintiffs agent had told them regarding the lack of coverage under the Allstate policy for the pole barn should control, despite what the policy provided or did not specifically exclude. Allstate further contended that a specific policy exclusion, in this case endorsement AP 54, was not necessary and it was not their practice to have insureds actually sign the AP 54.

In granting plaintiffs' motion for summary judgment, Onondaga County Supreme Court Justice Anthony J. Paris found that plaintiffs had met, and defendants had not met, their respective burdens of showing on their motions for summary judgment:

In reviewing insurance policies vis-à-vis motions for summary judgment, Professor Samuel Donnelly instructs that there are two rules to follow:

First: Read the policy.

Second: Read the policy again.

It appears that the Court of Appeals agrees with Professor Donnelly as it has held in TAG 380, LLC v. COMMET 380, INC., 10 NY3d 507 (2008), that it is for the Court to determine the parties' rights and obligations under an insurance policy based on the specific language of the policy.

To negate coverage pursuant to an exclusion, a carrier must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case. Policy exclusions are to be narrowly construed and any ambiguity must be resolved against the insurer. BELT PAINTING CORP. v. TIG INSURANCE COMPANY, 100 NY2d 377 (2003).

Also, in construing an endorsement to an insurance policy, the endorsement and the policy must be read together, and the words of the policy remain in full force and effect except as altered by the words of the endorsement. COUNTY OF COLUMBIA v. CONTINENTAL INSURANCE COMPANY, 83 NY2d 618 (1994).

In this particular case, it is impossible for the policy and the endorsement to be read together as the endorsement AP 54 which allegedly excluded the pole barn from coverage was never attached to the policy or presented to Plaintiffs. Furthermore, when a copy of AP 54 was requested, all that Defendants could produce was a blank form without any entries describing the structure or evidencing a signature by either Plaintiff. Also, the policy provides for "other structures" protected in the amount of forty-one thousand nine hundred seventy-two dollars ($41,972.00).

Therefore, the policy language commands and it clearly and unambiguously states that under Coverage B at Page six of the policy that structures at Plaintiffs' address separated by clear space are covered.

The Court notes that the only other structure on Plaintiffs' property separated by clear space is the pole barn. The Court further notes that pursuant to CPLR 3123 Defendants have admitted that the policy and endorsements in Plaintiffs' Exhibit L are the policy endorsements that are the subject of this action. The AP 54 endorsement is not contained therein.

Where the language of the policy is clear and unambiguous, parole and extrinsic evidence may not be considered. STATE OF NEW YORK v. HOME INDEMNITY COMPANY, 66 NY2d 669 (1985); KENNEDY v. VALLEY FORGE INSURANCE COMPANY, 203 AD2d 930 (4th Dept., 1994).

Even if the Court went "outside the box" and considered evidence extrinsic to the policy, what can be considered?

How about the deposition testimony of MR. HUDSON, Defendants' adjustor, with twenty-four (24) years of experience, who testified that AP 54 is used to exclude structures otherwise covered. So if AP 54 is not issued, then, there is coverage. Also, if AP 54 is not filled in and addressed to a particular structure, there is coverage.

How about the deposition testimony of MR. BEALE, who never found nor could secure AP 54 from the Company and was never given an explanation as to why it could not be located. Most likely because it did not exist.

How about MS. GLEASON'S testimony, the Defendants' supervisor, who denied coverage because the Company computer told her to do so. Sounds a little like the teleprompter thing that Rush talks about.

And let's not forget the testimony of MS. HARROD [plaintiffs' agent] who told Plaintiff, CYRUS WEICHERT, that the pole barn was not covered because of size and intended use, but never secured information regarding size or intended use, and collected a double commission, one from Defendants and one from the other carrier who duplicated coverage.

In addition, MS. HARROD testified that she never read the policies that she wrote for plaintiffs in 2000 or 2002. Had she done so, she would have realized that there was coverage under the policies, specifically, Coverage B.

Defendants cannot defeat Plaintiffs' motion for summary judgment on the mere allegation that there was no coverage because MS. HARROD said so, especially when the language of the policy specifically provides for such coverage.

The fact that she was in error and caused Plaintiffs to pay a double premium cannot be held against Plaintiffs who relied on Defendants' agent's mistaken statements. Fortunately for Defendants, Plaintiffs had another policy that covered part of the loss to the pole barn and only seek excess or secondary coverage.

If an insured cannot recover when he or she does not read the policy and alleges that the agent told the insured there was coverage that's not in the language of the policy, how can an insurance company avoid coverage by saying its agent told the insured there wasn't coverage when the agent did not read the policy that specifically contains coverage and does not exclude such coverage.What the policy says is what the policy means; and the Court will cite the case of GOOSE v. GANDER, at 19 AJP 814.

Had the policy not be sufficiently clear in what it did not contain, perhaps Justice Paris could have ordered the parties to settle their coverage dispute with a game of rock, paper, scissors, as United State District Court Judge Gregory Presnell did in Avista Management, Inc. v. Wausau Underwriters Ins. Co.

It seems that all I really needed to know for analyzing and litigating insurance coverage disputes I did learn in kindergarten. Thank you Mrs. Henning.

Monday, October 5, 2009

Many personal auto policies exclude liability coverage for the ownership, maintenance or use of a vehicle in "any race, speed contest or performance contest." Some modern personal auto policies, such as ISO's PP 00 01 01 05 personal auto form, limit the application of that exclusion to vehicles "located inside a facility designed for racing" while being used for the purpose of competing in, practicing or preparing for "any prearranged or organized racing or speed contest."

MIC Property & Casualty Corp. insured Pedro Avila and his vehicle. On October 3, 2005, the Avila vehicle, being driven by Merqui Avila, struck an automobile, killing one of the passengers in that vehicle and injuring two others. Merqui and the driver of another vehicle, Carlos Molina, were charged with manslaughter in the second degree as a result of the accident. During their plea allocution to the reduced charge of criminally negligent homicide, both admitted that at the time of the accident, they were engaged in a speed contest. In their prior statements to the police, however, they admitted only that after being stopped adjacent to each other at a traffic light, they each attempted to pass the other over the ensuing blocks until the accident occurred.

The injured passengers and the decedent's estate sued all three vehicles' drivers and owners. MIC disclaimed coverage to the Avilas based upon a policy provision that excluded liability for a vehicle that was used in or preparing for "any race, speed contest or performance contest." MIC then commenced this action for a judgment declaring that it had no duty to defend or indemnify Merqui or Pedro Avila in the underlying actions. Nassau Supreme granted MIC's motion for summary judgment declaring, in effect, that MIC owed no liability coverage to the Avilas. The decedent's executrix appealed.

In a 3-2 decision, the Second Department REVERSED the order appealed from and denied MIC's summary judgment motion. In the three-justice majority's opinion, the statements made by the drivers to the police on the day after the accident, which were admissible for the purpose of defeating a motion for summary judgment, raised a triable issue of fact as to whether Merqui's conduct fell within the speed contest exclusion:

Merqui's plea of guilty to criminally negligent homicide does not, in itself, establish that he was engaged in a speed contest at the time of the accident. "A person is guilty of criminally negligent homicide when, with criminal negligence, he causes the death of another person" (Penal Law § 125.10). Since nothing in the statutory language requires that, to be convicted of that crime, a person have been engaged in a speed contest, the conviction of criminally negligent homicide does not, in itself, establish that Merqui was involved in a speed contest (see Allstate Ins. Co. v Zuk, 78 NY2d 41, 45).

Merqui's admission that he was engaged in a speed contest at the time of the accident also is not dispositive here. At issue here is the meaning of the term "speed contest" in the exclusion from coverage contained in the insurance policy issued by MIC. To " negate coverage by virtue of an exclusion, an insurer must establish that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case'" (Belt Painting Corp. v TIG Ins. Co., 100 NY2d 377, 383, quoting Continental Cas. Co. v Rapid-American Corp., 80 NY2d 640, 652; see Incorporated Vil. of Cedarhurst v Hanover Ins. Co., 89 NY2d 293, 298). Any ambiguity in the exclusion is to be construed against the insurer (see Allstate Ins. Co. v Noorhassan, 158 AD2d 638, 639). "The test for ambiguity is whether the language in the insurance contract is susceptible of two reasonable interpretations. The focus of the test is on the reasonable expectations of the average insured upon reading the policy" (NIACC, LLC v Greenwich Ins. Co., 51 AD3d 883, 884 [internal quotation marks and citations omitted]). "The insurance company bears the burden of establishing that the exclusions apply in a particular case and they are subject to no other reasonable interpretation" (MDW Enters. v CNA Ins. Co., 4 AD3d 338, 340; see Seaboard Sur. Co. v Gillette Co., 64 NY2d 304, 311; Gaetan v Firemen's Ins. Co. of Newark, 264 AD2d 806, 808). MIC failed to carry this burden here.

The policy does not define the term "speed contest." Where the term is used in New York law, however, in Vehicle and Traffic Law § 1182(1), it does not encompass the conduct in which Merqui engaged here. Merely speeding down the street, even in tandem with another vehicle, does not constitute a "speed contest" within the meaning of that statute (see People v Grund, 14 NY2d 32; see also Shea v Kelly, 121 AD2d 620, 621). "Violation of this statute means that, at least by implication, some race course must have been planned by the competitors along a street. It is not enough that an automobile operated by defendant and one by his codefendant left an intersection abreast when the traffic light changed to green and, thereafter, travelled abreast at about 55 miles an hour, each car jockeying for position" (People v Grund, 14 NY2d at 34).

The statements made by Merqui and Molina to the police on the day after the accident, which are admissible for the purpose of defeating a motion for summary judgment (see Ashif v Won Ok Lee, 57 AD3d 700; Westchester Med. Ctr. v Progressive Cas. Ins. Co., 51 AD3d 1014, 1017; cf. Niyazov v Bradford, 13 AD3d 501, 502), raised a triable issue of fact as to whether Merqui's conduct falls within the exclusion as so defined. Therefore, MIC's motion for summary judgment should have been denied (see Alvarez v Prospect Hosp., 68 NY2d 320, 324).

The two dissenting justices disagreed with the majority's reliance on the "speed contest" section of New York's Vehicle & Traffic Law to find that there was a question of fact on the applicability of MIC's speed contest exclusion:

[I]n the case at bar, the issue is not the sufficiency of evidence with respect to the drivers' criminal convictions, but rather, whether MIC met its burden of establishing that the conduct at issue falls within the policy exclusion. In contrast to Vehicle and Traffic Law § 1182, the policy at issue does not require that a race be prearranged or organized, nor does it cite to the Vehicle and Traffic Law. The policy merely uses the same phrase, "speed contest." In this regard, it is to be noted that the phrase "speed contest" also has been interpreted to mean "a challenge coupled with a response in speed and relative position indicating acceptance of the challenge," which is a lower standard of proof than that required for a criminal conviction for drag racing under Vehicle and Traffic Law § 1182 (Shea v Kelly, 121 AD2d 620, 621, citing People v Grund, 14 NY2d 32). Moreover, based on the statements which the drivers made to the police at the time of their arrest, I believe that it is fair to conclude that their actions prior to the accident constituted such a "speed contest." Indeed, both drivers indicated that just before the accident occurred, and after stopping at a traffic light, Merqui pulled away at a high rate of speed and Molina raced to catch up with him. After stopping at a second traffic light, they continued "playing with each other," and pulled away at a high rate of speed as Merqui tried to pass Molina.

The dissenting justices also noted that both charged drivers, in allocuting to their guilty pleas, admitted that they had been engaged in a speed contest:

Furthermore, although no specifics as to the speed contest were elicited during the plea allocution, neither Merqui nor Molina was charged with a violation of the Vehicle and Traffic Law. Finally, and most significantly, the drivers clearly admitted that they had participated in a speed contest when they were asked that question during their plea allocution. Indeed, a review of the plea minutes indicates that not only did the court specifically elicit such admissions from them, but also, that there was no concern expressed at that time about the meaning of the questions being posed.

Lewis Carroll wrote Jabberwocky for his brothers and sisters in 1857 when he was 23 years old. Fair Price Medical was decided by the New York Court of Appeals in 2008 when New York's no-fault law was 31 years old. For over 150 years, the academic debate has continued over what the text of Jabberwocky means. In just over a year, Fair Price continues to spawn unusual decisions such as this one. In the words of young Alice from the Wonderland fame, "It seems very pretty, but it's rather hard to understand."

Andrey Armstrong was injured in an automobile accident on September 5, 2008. On October 4, 2008 and October 9, 2008, defendant Alev Medical Supply, Inc. purportedly provided medical supplies to Armstrong. Armstrong assigned his right to no-fault benefits for these items to Alev, which submitted bills for the medical supplies to the plaintiff, Lincoln General Insurance Company.

Lincoln received the bills from Alev on November 10, 2008 and paid the bills in part and denied the bills in part 24 days later on December 4, 2008. Lincoln issued checks to Alev for the portions of the bills it paid and issued denials for the balance of the bills. Lincoln denied a portion of the bills on the ground the charges for the medical supplies and equipment were not in accordance with the no-fault payment schedule, 11 NYCRR Part 68. Alev received and deposited the checks issued in payment of the claims.

On December 18, 2008, Armstrong testified at an examination under oath that he never received any of the equipment Alev claims it provided to him. Based on that testimony, Lincoln commenced this action seeking to recover the money it paid to Alev on the claim. Alev defaulted in the action, and Lincoln moved for a default judgment against Alev.

In denying Lincoln General's unopposed motion for a default judgment, Nassau County District Court Judge Fred Hirsh relied principally on the Court of Appeals' decision in Fair Price Medical and held that since Lincoln General had not denied Alev's bills within 30 days for fraud, it could not seek to recover its payment of those bills based on fraud:

Lincoln could have denied the claim on the grounds it was fraudulent. Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra . Lincoln did not. It paid the claim in part and denied the claim in part. The denial of the claim was based not upon fraud but upon the charges not being in accordance with the no-fault payment schedule.

The purpose of the no-fault law is "...to ensure prompt compensation for losses incurred by accident victims without regard to fault or negligence, to reduce the burden on the courts and to provide substantial premium savings to New York motorists." Medical Society of the State of New York v. Serio, 100 NY2d 854, 860 (2003). See, Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra ; and Hospital for Joint Disease v. Travelers Property Casualty Ins. Co., supra . An insurer can contest an illegitimate or fraudulent claim, but it must do so within the strict time periods and processes established by the no-fault law and regulations. Presbyterian Hosp. in the City of New York v. Maryland Cas. Co., 90 NY2d 274(1997).

Permitting Lincoln to recover in this action would allow an insurer to avoid or evade the time restrictions of the no fault law and regulations by paying and then investigating a claim and suing to recover the previously paid benefits if the investigation reveals the claim was fraudulent. To permit this would subvert the entire no-fault system which establishes strict time limits by which an insurer must process, dispute and pay a claim.

The no-fault law and regulations require insurers to promptly investigate and pay claims. The regulations provide insurers with the verification process in order to obtain additional information designed to ferret out illegitimate or fraudulent claims.

While the 30 day period plus any applicable tolls for paying or denying a claim may be "...too short of a time frame in which to detect billing fraud, any change is up to the Legislature." Fair Price Medical Supply Corp. v. Travelers Indemnity Co., supra at 565.

All bases that an in insurer has for denying a no fault claim, except for specific and limited exceptions, must be raised in a timely denial.[FN2] The only way an insurer can avoid paying a fraudulent no fault claim is to deny the claim as fraudulent in a timely denial and to assert and prove the defense at trial. Id.; and Lenox Hill Radiology and MIA, P.C. v. Global Liberty Ins. Co. of New York, 24 Misc 3d 1225(A) (NY Civil Ct. 2009).

With due respect to Judge Hirsh and an appreciation of the case law context in which he was required to consider Lincoln General's motion, there is no indication that as of December 4, 2008, only three months after the accident, Lincoln General "could have denied [Alev's bills] on the grounds [sic] that [the claim] was fraudulent" or even had reason to request verification of those billings from Alev. Fair Price Medical addresses the legal consequence of a no-fault insurer doing nothing within 30 days of receiving what may be fraudulent billings. It does not, in this blogger's opinion, support or require the holding that a no-fault insurer which, in good faith, makes timely payment of a bill later discovered to be fraudulent cannot sue the provider on a fraud theory to recover that payment. Fair Price Medical and its ilk address only the preclusion of defenses to payment under Insurance Law § 5106(a) and Regulation 68.

Lincoln General was not seeking to "avoid or evade the time restrictions of the no fault law and regulations" in this case; it paid Alev's bills in a timely fashion. That fact alone should render the preclusion rule of § 5106(a) inapplicable. Permitting no-fault no-fault insurers that have timely paid bills later discovered to be fraudulent to sue the providers to recover those payments would not "subvert the entire no-fault system which establishes strict time limits by which an insurer must process, dispute and pay a claim." The system's objectives are met if, in the first instance, bills are timely paid. Certainly New York courts would not have no-fault insurers delay payment of bills by requesting verification of them when there is no apparent reason to do so. The 30-day preclusion rule is not a period of incontestability; it is a defense to payment rule. Once timely payment is made, the rule should be irrelevant. No further extension of that rule, from its genesis in Presbyterian Hospital through its unusual manifestation and application in Fair Price Medical is needed or warranted as respects an insurer's right to recover payments that it was fraudulently induced into making.

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